Risk Seeking or Risk Aversion? Phenomenology and Perception

16 Pages Posted: 1 Feb 2016

See all articles by Caterina Lucarelli

Caterina Lucarelli

Università Politecnica delle Marche

Mario Maggi

University of Pavia - Department of Economics and Management; University of Pavia - Department of Economics and Management

Pierpaolo Uberti

Università degli Studi di Genova - Department of Economics and Quantitative Methods (DIEM)

Date Written: January 29, 2016

Abstract

We relax assumptions on individual risk preference, and set two theoretical rules for portfolio choices: either minimize or maximize risk, for any return. Risk is modeled by four alternative formulas. We empirically test these rules by observing N=690 individuals (Caucasians, bank customers and financial professionals, aged 18-88), while making risky decisions, with measurement of Skin Conductance Response. Two perspectives are assumed to evaluate portfolio efficiency: individuals uniquely consider 'money'; or they experience a 'subjective' perception of money.

We find a large dominance of risk-seeking behaviors, if observed through the phenomenology of money, independently from the risk measure used. Conversely, the same individuals appear risk averter, when values include the subjective experiences, and risk is assumed to be mentally projected with standard deviation formula. These results are consistent for sub-groups of individuals, by gender, age, education and profession. Implications are severe, as a sign of unawareness of behavior under risk.

Keywords: Risk aversion, Heterogeneity, Risk Measures, Subjective Values, Model Evaluation and Selection, Skin Conductance Response

JEL Classification: C91, D81, D87, G20, G11

Suggested Citation

Lucarelli, Caterina and Maggi, Mario and Uberti, Pierpaolo, Risk Seeking or Risk Aversion? Phenomenology and Perception (January 29, 2016). Available at SSRN: https://ssrn.com/abstract=2724635 or http://dx.doi.org/10.2139/ssrn.2724635

Caterina Lucarelli (Contact Author)

Università Politecnica delle Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy
0039.071.2207196 (Phone)
0039.071.2207253 (Fax)

Mario Maggi

University of Pavia - Department of Economics and Management ( email )

Via San Felice, 5
Pavia, PV 27100
Italy

HOME PAGE: http://economia.unipv.it/pagp/pagine_personali/maggma/moreinfo.htm

University of Pavia - Department of Economics and Management ( email )

Strada Nuova, 65
Pavia, 27100
Italy

HOME PAGE: http://economia.unipv.it/pagp/pagine_personali/maggma/moreinfo.htm

Pierpaolo Uberti

Università degli Studi di Genova - Department of Economics and Quantitative Methods (DIEM) ( email )

Via Vivaldi, 5
Genova, 16126
Italy
++39.010.209.5225 (Phone)
++39.010.209.5269 (Fax)

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